Federal Tax Analyst: Higher Taxes Are Inevitable

With medical care costs rising wildly and the federal deficit passing $300 billion, someone in Washington had better start thinking about paying the bills, warns the deputy chief of staff of Congress' Joint Committee on Taxation.

Alan J. Auerbach told yesterday's annual meeting of the Lehigh County Industrial Development Corp. at the Holiday Inn Conference Center in Fogelsville that the only logical solution is to collect more revenues -- by increasing taxes.

"If the budget deficit is going to be attacked in a serious way, two things will happen," said Auerbach, who is on leave as chairman of the economics department at University of Pennsylvania. "One, there will be a reduction in the growth of entitlements -- particularly Medicare and Medicaid. Two, there will be a tax increase.

"I'm not saying there should be a tax increase. It's simply a matter of arithmetic ... "

Auerbach was a late substitute for his boss, Harry L. Gutman, chief of staff of the Joint Committee of Taxation, whose appearance was canceled after the death on Monday of his father I. Cyrus Gutman, the former president of the LCIDC.

Auerbach said election-year politics and the well-publicized gridlock between Congress and President Bush have watered down legislation that could have begun to solve the mounting fiscal problems.

"If you look at tax legislation that's actually become law this year, they are 0-for-1, and they are still having their second at bat," said Auerbach, whose staff of 75 provides tax and revenue analysis for Congress.

President Bush vetoed the first bill in March. It included an increase in tax rates on people who had incomes over $140,000, a millionaire surtax and a middle income tax cut.

"They recently passed another bill which is sitting somewhere along Pennsylvania Avenue between the Capitol and the White House," Auerbach said.

Auerbach said the second tax bill -- HR-11 -- is weak. It fails to address a number of difficult issues, including the redistribution of taxes.

But Auerbach said the president won't sign it until after the election because "anything that raises money is going to be called a tax increase, and the president may not want to sign anything that has the words `tax increase' in it."

With the country in its longest recession since the 1930s, Auerbach said its makes sense to implement new taxes gradually. But with national health care on the agenda and a deficit that can no longer be ignored, new taxes are inevitable.

"The problem with higher taxes on higher-income individuals is that you don't raise much revenue," Auerbach said. "There aren't enough individuals to pay off the deficit -- unless they are all like Ross Perot.

"So what you've got to do is increase the tax burden by lowering the threshold. Or you can rely on other taxes -- like gasoline taxes, value-added (sales) taxes or broader energy taxes.

"Not too many people want to talk about this publicly, but it will be reviewed next year."